• Fitch Solutions has revised its 2022 fiscal deficit forecast for the Dominican Republic to 3.4% of GDP, from 3.1% previously, as expenditures surprised to the upside in mid-2022. In response to inflationary pressures from the Russian invasion of Ukraine, the government increased public sector wages by 18.6% y-o-y and subsidies by 160.6% in the year through October – which represent 25.7% and 12.6% of current expenditures, respectively – while revenue growth has remained stable.
• In 2023, the fiscal deficit is expected to narrow to 3.2% of GDP, primarily due to subdued expenditures, which will fall from 19.6% of GDP in 2022 to 19.1% in 2023. Fitch expects that the government will prioritize fiscal consolidation in the year ahead, as a global rate-tightening cycle has raised the cost of borrowing.
• Current expenditure is expected to decline significantly from 17.7% of GDP in 2022 to 16.8% in 2023, as the government attempts to temper subsidies – particularly on fuels and transportation – and public sector wage spending. Despite the overall reduction in government spending in per cent of GDP terms, it will remain above 2021 levels, but much less than the pre-pandemic average.
• Government revenues will remain stable, falling only slightly from 15.9% of GDP in 2022 to 15.8% in 2023. Fitch expects that growth in 2023 will ease from 4.6% in 2022 to 4.2%, as softer goods and tourism demand from the US dampens DR export growth.
• Fitch forecast that the government debt burden will continue to grow from 47.5% of GDP in 2022 to 47.7% in 2023. Additionally, elevated global interest rates have raised borrowing costs, which will also pressure the Abinader administration to cut its debt load. Consequently, total government debt is expected to fall to 47.2% by 2026.

(Source: Fitch Solutions)

• On Dec. 12, 2022, S&P Global Ratings revised the outlook on its long-term ratings on Peru to negative from stable and affirmed the 'BBB' long-term foreign currency and 'BBB+' long-term local currency sovereign credit ratings, as well as the 'A-2' short-term foreign and local currency sovereign credit ratings.
• The negative outlook reflects the risk to the sovereign's creditworthiness from the enduring political standstill and challenging relationship between the country's executive and legislative branches of government. Former President Pedro Castillo's recent attempt to dissolve Congress and his subsequent ouster from office is the latest development of Peru's long-standing political impasse, which threatens to weaken the government's capacity to implement timely policies to support robust private investment and economic growth.
• S&P could lower the ratings by one notch if a prolonged political impasse or further adverse developments reduce the predictability of policymaking or worsen institutional stability, auguring badly for economic policy outcomes.
• On the other hand, the rating agency could revise the outlook to stable over the next two years if Peru makes progress on reducing the heightened political uncertainty and maintaining continuity in key economic--including fiscal and monetary--policies. A timely reduction of the uncertainties created by recent developments, along with prospects of greater stability in governance and solid economic policies, could sustain the current sovereign credit rating.

(Source: S&P Capital IQ

• Global public and private debt saw its biggest drop in 70 years in 2021 after reaching record highs because of the impacts of COVID-19, but overall remained well above pre-pandemic levels, the International Monetary Fund said on Monday, Dec. 12.
• In a blog released with its inaugural Global Debt Monitor, the IMF said total public and private debt decreased by 10 percentage points to 247% of the global gross domestic product in 2021 from its peak of 257% in 2020. That compares to around 195% of GDP in 2007, before the global financial crisis.
• The unusually large swings in debt ratios - or "global debt rollercoaster" - were caused by the economic rebound from COVID-19 and the ensuring swift rise in inflation, the IMF said.
• There are growing concerns about the ability of low- and middle-income countries to repay their debts, with an estimated 25% of emerging market countries and over 60% of low-income countries either in or near debt distress.
• High inflation levels continued to help reduce debt ratios in 2022, but spending will increase if inflation becomes persistent, which could lead to higher premiums. The IMF said governments should pursue fiscal policies that help reduce inflationary pressures now and debt vulnerabilities over the long term while continuing to support the most vulnerable.

(Source: Reuters

• The November U.S. budget deficit jumped by $57Bn or 30% from a year earlier to $249Bn, a record for the month, as revenues fell and outlay for education, healthcare and interest on the public debt rose sharply, the U.S. Treasury said on Monday.
• Receipts for November fell 10% or $29Bn from a year earlier to $252Bn, while outlays rose 6% or $28Bn to $501Bn, also a November record.
• Driving the revenue decline was a 4% drop in individual withheld tax receipts, a 64% increase in individual tax refunds and a 98% decline in Federal Reserve earnings.
• The outlays were driven by a $14Bn, or 18% increase in Medicare costs, and an $11Bn, or 94% increase in education costs due to changes in direct student loan programs and public service loan forgiveness, a Treasury official said.
• The Treasury's interest costs on U.S. public debt grew 53% or $19Bn during November, but this was largely offset by a $17Bn decline in tax credits for children and low-income workers. For the first two months of fiscal 2023, the Treasury's interest payments are up $48Bn, or 87%.
• The Treasury's deficit for the first two months of fiscal 2023 was down 6%, or $20Bn, to $336Bn, with outlays down 2% and revenues up 1% compared to the year-earlier period.

(Source: Reuters)

• Massy Holdings Ltd has advised that on November 28th, 2022, its Board of Directors approved the acquisition of Air Liquide, Trinidad and Tobago Limited by Massy Gas Products Holdings Ltd. (MGPHL), a subsidiary of the Company.
• MGPHL entered into a Share Purchase Agreement with Air Liquide International S.A. to purchase 100% of the share capital of Air Liquide for between US$51.5 Million and US$58 Million; with the higher-end range related to an earnout that is payable annually based on additional value considerations being met. Completion of the transaction remains subject to regulatory approval by the Trinidad and Tobago Fair Trading Commission.
• The acquisition of Air Liquide, a manufacturer and supplier of industrial gases (oxygen, nitrogen and argon), is aligned with MGPHL’s strategy to grow its core business.
• The acquisition will represent an 11.4% increase in the Massy Group’s assets and will contribute to an approximate 3% increase in the Group’s profit. For the Gas Produ­cts Portfolio, the acquisition is expected to increase its profit before tax by about 14%.

(Source: JSE)

• The Dutch Caribbean Securities Exchange (DCSX) and the Jamaica Stock Exchange (JSE) have signed a Memorandum of Understanding to partner on several market initiatives to grow the financial services industry in their respective jurisdictions.
• Both stock exchanges will partner in areas such as digitization, market education, cross-listing and accessing the European markets. The JSE is seeking to continue forging this partnership with DCSX as it pursues its 2025 vision to expand its borders for growth and sustainability.
• de Graaff, DCSX’s Managing Director, highlighted that partnering with other stock exchanges will allow the regional markets to evolve. “The Jamaica Stock Exchange has proven to be very successful in developing a liquid local market. A true example for us in Curacao”, he added.

(Source: JSE)

• The World Bank’s Board of Directors today approved a US$230Mn Development Policy Loan with a Catastrophe Deferred Drawdown Option (Cat-DDO) to support the Dominican Republic’s disaster risk management efforts. Cat-DDO can be quickly disbursed to respond to a natural disaster or health-related event.
• The programme seeks to improve the government’s capacity to strengthen disaster preparedness, response, and recovery, benefiting the Dominican population, especially the most vulnerable segments.
• The Government of the Dominican Republic has called for major reforms to improve disaster risk management and climate change adaptation, with an emphasis on improving preparedness and planning with timely information, as well as on limiting the fiscal and economic impact of disasters on the most vulnerable households. This new World Bank Cat DDO loan, following the one that closed last year, reveals the urgency of these reforms
• These reforms include the implementation of the first fiscal strategy for disaster risk management, strengthening of land use regulations to guarantee better planning, safer housing and construction, improved geospatial information (essential for risk assessment), and increased adoption of emergency mitigation and social protection measures.
• Of note, The Dominican Republic ranked 32 out of 181 countries on the Bündnis Entwicklung Hilft Global Risk Index 2021. This high exposure to disaster risk can result in significant economic impacts. The occurrence of extreme weather events underscores the need for urgent measures to strengthen the country’s resilience and adaptation in an inclusive manner

(Source: Dominican Today)

• Brazil’s Federal District will modernize its fiscal management while enhancing its tax administration and public expenditure management with the help of a $72.7Mn loan approved by the Inter-American Development Bank (IDB). The loan has a 24.5-year term and a 6-year grace period, at an interest rate based on the Secured Overnight Financing Rate (SOFR).
• The financing is part of the $900Mn Fiscal Management Modernisation (PROFISCO II) programme, which was approved in 2017 to digitally transform and modernize fiscal management in Brazil’s 26 states and the Federal District.
• Most of the funds ($40Mn) will be used to upgrade technological infrastructure by creating data storage and processing platforms, establishing an IT park, training staff on new technologies, implementing data cybersecurity systems, and using artificial intelligence to serve taxpayers, among other initiatives.
• Another $21Mn of the new loan is designed to streamline tax collection, raise revenues, and simplify tax compliance, while the project will allocate almost a quarter of its resources to help mitigate climate change.

(Source: Caribbean News Global)

• S. logistic managers are bracing for delays in the delivery of goods from China in early January as a result of cancelled sailings of container ships and rollovers of exports by ocean carriers.
• Carriers have been executing an active capacity management strategy by announcing more blank sailings and suspending services to balance supply with demand. “The unrelenting decline in container freight rates from Asia, caused by a collapse in demand, is compelling ocean carriers to blank more sailings than ever before as vessel utilization hits new lows,” said Joe Monaghan, CEO of Worldwide Logistics Group.
• S. manufacturing orders in China are down 40 per cent, according to the latest CNBC Supply Chain Heat Map data. As a result of the decrease in orders, Worldwide Logistics tells CNBC it is expecting Chinese factories to shut down two weeks earlier than usual for the Chinese Lunar New Year — Chinese New Year’s Eve falls on Jan. 21 next year. The seven days after the holiday are considered a national holiday.
• Supply chain research firm Project44 told CNBC that after reaching record-breaking levels of trade during the pandemic lockdowns, vessel TEU (twenty-foot equivalent unit) volume from China to the U.S. has significantly pulled back since the end of summer 2022 — including a decline of 21% in total vessel container volume between August and November.
• HLS analysts are predicting a further 2.5% decline in container volumes and a nearly 5-6% increase in capacity in 2023, which will continue to negatively impact freight rates in 2023.

(Source: Reuters)

• The Bank of England looks set to raise interest rates to 3.5% or more next week, but policymakers appear increasingly split on how much tightening is needed to tame double-digit inflation as the economy heads into recession.
• Financial markets currently price in a 78% chance that the BoE will raise rates by half a percentage point to 3.5% on Dec. 15, and a 22% chance of a rise to 3.75%. The market is currently expecting BoE rates to peak at 4.75% by the middle of next year, while HSBC expects the BoE to stop at 3.75% in February and Investec predicts a peak of 4%.
• The central bank's immediate concern is British consumer price inflation, which hit 11.1% in October, the highest reading since 1981 and more than five times the BoE's 2% target, up from 4.2% a year earlier.
• While much of the increase has been driven by higher energy prices following Russia's invasion of Ukraine, the BoE fears labour shortages and other bottlenecks caused by the COVID-19 pandemic and Brexit could make inflation slow to fall.
• On Nov. 3, the BoE estimated Britain had entered a recession that would last until the end of next year and shrink output by 1.7% - a bigger drop than more recent forecasts, and one which partly reflects elevated market rate expectations at the time the forecasts were made.

(Source: Reuters)